Investing in Whisky Part 2 – Where to Start?

Robert Burns once wrote that John Barleycorn was a “Hero of noble enterprise.” That said, not even Burns could have predicted that a bottle of “good Scotch drink” would be listed on the World Whiskey exchange for €65.000,00.

Now, it’s unlikely that you can nip off down to the local liquor store and find a 1919 bottle of 50-year-old Springbank. That said, there’s a couple of tips for those looking to speculate in the single-malt market.

There’s money to be made in Scotch. The question is—how?

Well, it’s not wine. Wine, when invested in, will age in the bottle. Investing in wine is therefore relatively simple; find a good-but-young-wine, age it, sell it table-ready. Whiskey, however, practically ceases to age when it is bottled. That means a price fluctuation in whiskey has nothing to do with age; it has to do with rarity of the bottle.

To begin with, research your distillery. Certain distilleries, such as Glenlivet or Glenfarclas, make their profit by producing as much whiskey as they can. Their reputation amongst Scotch collectors, therefore, is such that investing in their whiskeys will likely never see a price rise.

That said, there is always an exception to every rule. In 1975, for example, Bushmill’s distillery (best known for funneling blended whiskey down the throats of as many Irish-Americans as possible) laid down a row of casks called the “millennium malt.” It was a special project, and they allowed investors to buy a cask. Investment clubs sprang to life, with enthusiasts purchasing a portion of a keg.

Anyone who did that has, by now, multiplied their money by a full degree of magnitude or more. These special projects often involve a high-quality product, but any investment in them is going to be a long-term bet that the distillery doesn’t go broke in the meantime.

Next tip: visit your distillery, and buy directly. Skipping the middle man can save you a pretty decent chunk of your initial investment. If you can’t get to a distillery then you can buy online at stores like The Whisky Exchange.

If you are making a serious investment in whiskey, see if you can reserve (say) a cask of whiskey to age longer than possible. Many distilleries will sell casks directly, and negotiating a special age for your whiskey could fetch a high price when it comes time to sell. If you go this route, however, beware: older is not always better. There are regions of Scotland that produce fine, delicate whiskeys that begin to lose their flavor after 15-20 years in the cask. These tend to be Lowlands, Highlands, or Speyside Scotches.

If, however, you can get a special age on a “peated” Scotch, then you’re in business. “Peated” scotches generally come from Islay, though there are other distilleries now smoking with peat. Peaty Scotches tend to age much slower than wood-smoked ones, making a custom aging time much more desirable. Look for distilleries like Ardbeg, Laphroiag, and Bowmore for whiskeys like this.

Finally, for investment purposes, look for smaller distilleries. The current international market is driving distilleries toward corporate mass-production, and the smaller distilleries are beginning to be squeezed out. For lovers of good Scotch, this is a shame. However, for investors in Scotch, getting a large collection from a small distillery as it begins to go out of business or reduce its production can leverage the eventual rarity of that particular whiskey into higher value.

For an example of this, look no farther than Fettercairn. Fettercairn is a two-still distillery in the Eastern Highlands that, until 2002, produced a lovely bourbon-casked whiskey. In 2001, the mom-and-pop distillery sold themselves to corporate owners, who changed the production methods. In 2007, it went from bad to worse when that corporation became a part of a larger conglomerate. The result? A 25% increase in the price of Old Fettercairn 10 yr.

Investing in Scotch has the potential to be very lucrative, if done correctly. It’s certainly a unique investment, and guaranteed to add diversity to a portfolio, if nothing else.

Just…make sure not to give in to the inevitable temptation to consume your investment.

18 Responses to Investing in Whisky Part 2 – Where to Start?

I had never thought of this as an investment type. Just goes to show that there is more than stocks and bonds out there.Glen @ Monster Piggy Bank recently posted..Getting Stung with Bank Fees and Charges

I had no idea about the Whiskey not aging and it was more about how rare the bottle was. I also had no idea you could invest in Whiskey. The things you learn. Is this something that you would invest in?Canadianbudgetbinder recently posted..Investing 101 for Newbies

Another way to gain exposure (if you can’t make the trip to the small distilleries in the highlands!) is to research stocks that give you exposure to such assets. LVMH listed in Italy which includes Moet and Hennessy among its brands is a great example.

Solid post. This makes sense since there are many wine enthusiasts who invest for the long haul too. The good thing about this investment style is you are probably forced to buy and hold for the long-term although you may be tempted to sell (drink) at the same time stocks are down to ease the pain.

Great article, I recently was luckily enough to be directed to investing in whisky by my brother in law who is far more educated in these matters than myself. I am now the proud owner of x2 casks with a certain distillery in Islay which is storing it for me for the next 9 years. My biggest problem is what to do with it all when the contract ends, sell it back to the distillery, find another buyer or pay the excise and bottling costs, have it all shipped down to me and retire 10 years earlier than planned happy in the knowledge that I will never run out of single malt!?

Yes, you CAN make money on whisky. Unfortunately the article has not been carefully researched and many statements are wrong or incomplete. For instance, if you consider glenfarclas as a mass product, then most of the distilleries would fall in this category. Furthermore, there are many collectible Glenfarclas and you could make money on it. Macallan is one of the largest distillery
In Scotland and highly collectible, if not the most. Look at their limited edition…
In conclusion, you can make money if this is your wish but learn about the product first and maybe buy what you like, so that you can enjoy its content if this market would collapse

A great article if it wasn’t full of inaccuracies and incorrect data. Here’s just a few of the more major howlers:

1. “Certain distilleries, such as Glenlivet or Glenfarclas, make their profit by producing as much whiskey as they can.” Not true. No distillery in Scotland makes whiskey – they all make whisky. There’s a difference! Secondly, these are not great examples of mass-produced whiskies. If these are mass-produced, then so are half the distilleries in Scotland!
2. “Peaty Scotches tend to age much slower than wood-smoked ones, making a custom aging time much more desirable.” Nope. Simply not true. Yes, they are more desirable, particularly the older ones, but that’s more a case of supply and demand. They do not age faster or slower.
3. “There are regions of Scotland that produce fine, delicate whiskeys that begin to lose their flavor after 15-20 years in the cask. These tend to be Lowlands, Highlands, or Speyside Scotches.” Erm, no. There are individual casks that tend to lose their flavour as they get older, but you can never say this even for an individual distillery, let alone an entire region. After all, stating this for the three regions mentioned covers 80%+ of all distilleries – the world of whisky would be a pretty sad place, if they all lost their flavour after such a short time.
4. Fettercairn. No. Just, no!

It’s a shame that this article wasn’t researched in any way or written with any in-depth knowledge of the Scotch whisky industry…

1.) Fettercairn distillery hasn’t been a “mom and pop” shop since 1939 when the Associated Scottish Distillers Limited bought it from the Gladstones. It has since passed through the hands of at least 7 different corporations. And I don’t know of a single whisky expert (or amateur) who would speak highly of its quality, let alone its collectability.

2.) Glenfarclas IS a family run distillery. It is NOT one of the larger distilleries. In fact, its production capacity of 3.4 million litres puts somewhere in the middle of Scottish distillery production sizes. On top of that, its very limited Family Casks vintage releases are known to be rare and valuable to those who care about that sort of thing. Plus the quality of their whisky is well-regarded industry wide. Perhaps the writer was supposed to be referring to Glenfiddich, whose production is triple that of Glenfarclas’s and is the largest producer of single malt in the world?

3.) “Finally, for investment purposes, look for smaller distilleries.” Huh? If one checks out the list of the highest selling bottles at auction, the distilleries are Macallan, Dalmore, and Glenfiddich (all large distilleries). Historically those have sold for the most. At the same time, most smaller distilleries actually have to have higher prices on their bottles from the start due to limited output. So one is often buying high right from the start. The dozen small distilleries being constructed around Scotland right now will only challenge that statement further. And if you think that investing in Edradour (the smallest established distillery) is a good idea, then I have a bridge to sell you.

4.) “price fluctuation in whiskey has nothing to do with age; it has to do with rarity of the bottle” Where are the facts to back up this statement? Age does largely determine the original price of a bottle at the outset, and those high selling Springbanks, Dalmores, Macallans, and Glenfiddichs are all very old. And they are rare, but mostly because it’s a financial risk for distilleries/bottlers to hold onto casks for so long. So they are rare because of their age. Price fluctuation is also determined by fads and media coverage, see the gouging going on with Van Winkle and Hirsch bourbons in The States.

5.) “There are regions of Scotland that produce fine, delicate whiskeys that begin to lose their flavor after 15-20 years in the cask. These tend to be Lowlands, Highlands, or Speyside Scotches.” What? Where are the facts or data to back that one up? Lowlands+Highlands+Speyside makes up 91% of the malt production in Scotland, firstly. Secondly, the main issue with older stock is that, depending on the cask and maturation conditions, the whisky can get very oaky. Some folks like oak, some folks don’t. And I’m not sure how much that actually affects the selling price.

6.) “Peaty Scotches tend to age much slower than wood-smoked ones.” No. Again, aging has to do with the oak and the maturation conditions. Time, temperature, and tannins. For instance, Kilchoman has 4-6 year old whisky that has aged very quickly and has been known to stand up to other peated whiskies thrice its age. There are a number of older Bunnahabhains that seem very youthful due to re-fill casks.

7.) “visit your distillery, and buy directly.” Bottles at distilleries are often priced high for the tourist trade. It’s like buying a Mickey Mouse doll at Disneyland, it’s going to cost a lot more than just getting it at a local toy store.

8.) Very very few distilleries are selling casks directly at this point. Few of them are even releasing casks to large independent bottling companies. Please see any industry magazine, journal, website, book, or blog about how the popularity of whisky has put a strain on the volume of whisky being held in bond right now. Whisky is in, worldwide (or at least to those who can still afford it), so most companies are holding onto what they’ve got.

And with popularity being so high, why would buying in right now be a good idea? Shouldn’t investors be searching for things that aren’t popular yet, items with higher value or growth potential?

Just wanted to thank you for leaving such an in-depth, insightful comment and I hope that others find your points useful. There have been many contributors to our site in the past as you can see from the follow up post to this article ‘A smooth investment for rough times?’, which is again written by a contributor author and I hope you find the points in that article more factual. I hope you can appreciate that I really am not able to become an industry expert on every subject in the short time we have available to review and post an externally authored article, so to some extent we have to trust that the points contributors are making are factually correct. If they are not then we are more than happy to receive constructive comments to highlight any inaccuracies for the readers benefit.

We are also willing to accept content from people like yourself, but again I would have to trust that the points you are making are also factually accurate as I have already done by approving this comment.

A lot of what I cited is from popular published whisky resources, but also much of it can be found via Google searches. Many whisky fans have recently noticed quite a number of articles about whisky investment and value that either don’t make sense or could have greatly benefited from more research. It would benefit not only we geeks, but also general readership curious about whisky. Whisky is an enjoyable thing and a discussion on its value can be a good thing.

There are a number of whisky folks who have some knowledge of general finance and market history and we wonder why people are being encouraged to jump in on it as an investment when prices have already risen exponentially in recent years. It’s a sellers dream market right now, and know a number of very happy sellers.

As the writer in the “A Smooth Investment for Rough Times” article said, people should apply the rules of regular sensible investment before jumping into investing in whisky, because people who do not do so will not only buy too high but they will wind up grabbing one of the MANY bottle fakes up for auction.

By the way, whisky is also delicious. I encourage people to drink it, responsibly.